Times Not on The Euro’s Side, RBA in Focus

After falling by more than 150 pips, the euro closed lower by just a half cent at 1.1056 in a tumultuous day. Anxiety about a Greek exit cooled, at least for the moment, after comments from European leaders suggested room for negotiation. Greek finance minister Varoufakis also offered an olive branch of sorts by resigning. European finance ministers disliked his brash style and his exit is a strong signal that Syriza wants a quick deal.

The conciliation from both sides was some measure of progress but we underscore that small steps and platitudes aren't nearly enough. Greece's economy is hemorrhaging and the ECB tightened the noose Monday by raising the haircut on collateral from Greek banks. That effectively narrows the ELA lending program and will exacerbate the cash crunch when (if) banks reopen.

The next 2-3 days present a narrow window of opportunity for a deal but time-and-time again leaders have delayed and missed deadlines. In addition, there is no special incentive for Troika creditors to make a deal. It will take a steady stream of continued positive signs to keep risk trades afloat.

In the hours ahead the focus shifts to the RBA decision at 0430 GMT. There are virtually no expectations for a cut although the continue fall in iron ore prices, the rout in Chinese stocks and Greece make it a small possibility. More likely is that Stevens' statement makes an easing bias more explicit and that could weigh on AUD/USD.

CFTC Commitments of Traders

Net speculative positions as of the close on Tuesday (-/+ denotes net short/long vs USD).

EUR -100K vs -90.9K prior

GBP -12.8K vs -22.2K prior

JPY -78.8K vs -87.7K prior

CAD -23.5 vs -17.6K prior

AUD -12.0K vs -9.0K prior

CHF +6.9K vs +7.1K prior

The numbers were delayed because of the US holiday but it's notable that despite all the the talk about delaying Fed rate hikes, that US dollar longs remain extremely popular. Cable shorts have stubbornly hung on despite the rally in June but the pair has now given up more than 50% of that rally. Still, the net GBP short is the smallest since December as BOE hikes creep closer.